Wednesday, April 29, 2015
Fed Day GDP
Advance GDP for the first quarter is in at +0.2. That's annualized. Current dollar GDP is +0.1, annualized.
This is exactly what rail traffic implied, so I am not surprised. But the details are somewhat unpleasant - Gross Private Domestic Investment was quite weak at 14 billion. Excluding inventory builds (+30.3 & the new category of research and development (+8.3), it would have been quite negative. The inventory build isn't a surprise, but it implies future weakness to some extent. The question is, how long can oil stocks build?
The increase in PCE was less than half of that of the fourth quarter, but of course we can't continue to spend at that rate.
Exports declined, but that was expected as a strong dollar effect.
It was a bad winter for most of the country, and there is a natural bounceback. Usually. The problem is that we probably have a net weakening of the ability to consume in the private sector, as the lower fuel cost surge has somewhat run off, but natural changes to consumption patterns from high basic costs and medical insured-but-not-covered costs remain.
Therefore, growth this year remains strongly dependent on credit-heavy sectors such as autos and homes.
Later this week we will get the next CMI (B2B credit), and I am hoping for that to take a turn up. Right now, the current and future indicators are still, to use an elegant economic intellectual term, piss-poor. If you are wondering, at least that's a notch above the term of art "Stock up on Imodium" most commonly associated with recessions.
The increase in capital gains taxes really was not a good idea for a weak economy. One expects a natural slowing in investment, and we are certainly getting it.
So far freight hasn't shown a spring surge. Truck tonnage for March recouped somewhat from a dire February but stayed below peak. Rail continues quite flat.
Shale oil has been a big uplift for the US for years, and with that impetus gone from the economy, we are down to cars and houses. The strong dollar does, of course, tend to weaken manufacturing.
The consumer confidence report yesterday was rather poor. It fell more than 6 points in one month, and the weakness was centered on the job market. That should not really be surprising after CMI, because that much weakness implies a pull-back by businesses extending until they recoup their finances.
My reading on housing is that it's not that bad, so I still have some hope. April readings on retail haven't been good. Rail says we are not seeing any surge of hope and change. Consumer confidence is flashing a warning signal. I will have to wait a while to see if my bullshit theory on retail was true.
The natural term for CMI is two months, so if the low was March, then we could hope for a pick up in June. April will not be a good month.
I'm wondering about rail container traffic, and manufacturing. Over the last year-and-a-half, I've seen a big shift in quotes for Chinese manufacturing. More often than not, landed costs are not cheaper even with the strong dollar, except for a few industries that are heavily penalized by regulation in the U.S. (like PC boards). Even in low-tech goods like knit and woven fabrics, and injection molding, I've been seeing no-bid or high bids from China.
Aside from wondering what changed, I'm wondering how widespread this is, and whether we might be seeing a negative effect on import container traffic and a positive effect on domestic manufacturing.
Of course, the barriers to domestic investment are going to limit the effect...
So, the optimist in me can say, "Yay! It hasn't all blown up - yet".
That *IS* the optimistic view, right?
There doesn't seem to be a big impending axe out there allowing no escape, but most recessions are not axe-precipitated but fatigue-precipitated. There's an attitude of ennui lingering in the air.
Here is the gasoline prices in Dallas TX for my first fillup each month.
Jan 15 $1.829
Feb 15 $1.859
Mar 15 $2.119
Apr 15 $2.179
This is make for an interesting 2nd QTR of 2015 as the price has risen enough for people to start complaining about it at work. Dallas is still strong with all the companies coming in from mostly California. Farmer's Coffee is closing their HQ in Torrance CA (LA suburb; same as Toyota) and relocating here. There are hiring bounties on IT people here. Housing prices are rising as people from CA are buying faster than they can build them. But Nebraska Furniture mart just opened and is hiring, Toyota is coming, Farmer's Coffee is coming, State Farm Insurance is relocating a bunch of regional offices here, and Liberty Mutual is moving here. Thanks for your insight.
I don't sense ennui, I sense middle class exhaustion from trying so hard and not getting anywhere.
You will almost always see price increases at the pump in March/April because of it. Mandated areas will see it AGAIN in September as refiners switch over again to the winter blends. Then in October you typically see price drops everywhere.
All that is of course regardless of the price of oil, which has its own bearing on pump prices. But until the last week or so oil prices have been relatively stable for the last 6 months so the pump price increases are due entirely to the EPA mandates affecting gasoline supplies..
The problem isn't so much that people don't make enough, it is that prices are too high. Only deflation will save the middle class.